Summary

• AME Elite Consortium Bhd's 3QFY21 net profit rose 2.1% YoY to RM15.1m, mainly due to the fair value gains on investment properties of RM5.7m and lower administrative expenses. Revenue for the quarter climbed 12.6% YoY to RM121.7m. For 9MFY21, cumulative net profit fell 34.9% YoY to RM31.9m. Revenue for the period, however, rose 4.6% YoY to RM297.3m.

• The reported earnings accounted for 64.1% of our estimates at RM49.7m and 61.4% of consensus forecast of RM51.9m. Meanwhile, the reported revenue was at 76.6% of our estimated revenue of RM388.3m and 72.0% of consensus forecast at RM413.0m. We deemed the figures to be in line on expectations that the extended recovery in 4QFY21 will catch-up to our estimates.

• In 3QFY21, only the construction segment underperformed with EBIT falling 56.9% YoY to RM5.8m, dragged down by the timing of execution of external construction projects. As a result, the overall group EBIT margin declined to 16.7% vs. 25.5% recorded in the previous corresponding quarter.

• As of 3QFY21, AME is equipped with an unbilled construction orderbook of approximately RM200.0m, representing unbilled orderbook-to-cover ratio at 1.1x against FY20 construction revenue of RM185.2m that will provide earnings visibility over the next two years. While there were 22 Covid-19 cases reported at the worker’s dormitory, AME has conducted immediate sanitisation and set up a separate off-site quarantine centre.

• After recording -68.0% decline to USD2.5bn in foreign direct investment (FDI) in 2020, we believe the figures should demonstrate strong recovery, as the political instability took a temporary backseat, coupled with the stronger ringgit against the Greenback. Still we caution that the rising competitiveness to attract FDI prevails against regional peers such as Indonesia, Cambodia, Vietnam and Myanmar that offers more business friendly initiatives.

Valuation & Recommendation

• With the reported earnings within our forecast, we made no changes to our earnings estimates and we maintained our HOLD recommendation on AME with a target price of RM2.21. Our target price is derived by ascribing a target PER of 14.0x to its FY22f EPS of 15.8 sen. A re-rating is in the cards, should margins recovery come above expectations in subsequent quarters or should sales from industrial properties gather pace.

• Risks to our recommendation and target price include dependence on the foreign direct investment in Malaysia. A change in government policy that is unfavourable to foreign investors will hinder the sales of their units in the industrial park. Failure to meet targeted orderbook replenishment may derail the prospect of earnings growth.

Source: Mplus Research - 26 Feb 2021